Analysts expect a 75bps base rate cut tomorrow

HUNGARY - In Brief 25 Mar 2024 by Istvan Racz

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The regular monthly rate-setting meeting of the Monetary Council is due tomorrow. Analysts responding to Portfolio.hu's usual poll have a median expectation of a 75bps base rate cut, with seven respondents forecasting this step, two expecting a 100bps rate reduction, and another two predicting only 50bps. The typical analyst comment is that the current level of inflation would allow another 100bps rate cut this time, but with the existing risk environment, the MNB had better be cautious about further rate-cutting actions. We are of the view that at EURHUF 396-397, the MNB indeed will need to be on the safe side, stepping back from its somewhat bolder action taken in February to the previously standard 75bps monthly speed. One reason out of a variety of factors is the development of fuel prices: including a 1% increase that will take effect on Wednesday, retail gasoline prices will have risen by a total 11.9%, whereas diesel prices have gone up by 9.3% since the start of 2024. The direct impact of this on the CPI is limited by the relatively small weight (6%) of fuel in the CPI basket, but the total impact is substantially bigger, because of the rising cost of transportation of all sorts of products. With the weakening forint and the current events of the war, fuel price prospects do not seem to be rosy. Importantly, analysts still expect the base rate at 6.5% at end-2024, essentially meaning that they do not predict any rate cut for H2 at all.